The Participation Banking As a Distinctive Method and the Its Growing in the Turkish Finance Market- Period: 2007-2013

The Participation Banking As A Distinctive Method And The Its Growing In The Turkish Finance Market- Period: 2007-2013

Ferhat Sayım Yalova University, Economics and Administrative Sciences Faculty, Yalova- Turkey | email: [email protected]

Volume 5 No 1 (2015) | ISSN 2158-8708 (online) | DOI 10.5195/emaj.2015.73 | http://emaj.pitt.edu |

Abstract

Financial systems and companies has become the most important reason in the weakness of world economic system. The formation and development process of the financial structure also constitutes the infrastructure of the world economic system. The path of the financial system and development has led to discuss with the financial crisis in 2008-2011. One of the argument topic in order to reduce problems caused by the conventional banking system is alternative financing systems. In Turkey, the corporations based on profit share system which are named participation based banking attention, if the alternative banking systems are considered. These banks which settle on different principles in the risk distribution of the portfolio acquired are analyzed more nowadays. Participation based banks are placed in almost every regulation related to banking terms and get their legal infrastructure more stable in the banking legislation of Turkey. This study is a 2007-2013 part of research series. We try to find out the place and the importance of participation based banking with the various sub-headings especially in Turkey. We examine the comparative review 2007-2013 data of participation banks which Total Assets, Equity Net Profit, Collected Turkish Currency and Foreign Currency Funds and Bank Loan Funds, figures for the four participation banks in Turkey. We are comparing the total figures with deposit banks for the same period. One of our primary aim in this essay, to study in the framework of the alternatives of the financial companies and options. These options could be stated as a vibrant and viable well established choice as a non-western model- different from the classical western interest based leading banking system in the globe. Moreover, that participation banking systems’ grow and increase with its resourceful bulk of transactions and shares within the financial market. In addition, we intended to delineate the basic functioning structures, rules, norms, principles, procedures, operations of that alternate banking system in the financial market.

Keywords: Bank, Finance Market, Finance Sector, Participation Bank, Islamic Bank, Interest Free Banking, Alternative Banking System

New articles in this journal are licensed under a Creative Commons Attribution 3.0 United States License.

This journal is published by the University Library System of the University of Pittsburgh as part of its D-Scribe Digital Publishing Program, and is cosponsored by the University of Pittsburgh Press. Volume 5 No 1 (2015) | ISSN 2158-8708 (online) | DOI 10.5195/emaj.2015.73 | http://emaj.pitt.edu

them look for new financial instruments and systems. For The Participation Banking As that reason, it leaded to the quest for other models, opportunities or proposals. A Distinctive Method And The The fiscal and financial-economic crises, especially in the its Growing in The Turkish European Union Member States, it may be due to of the rigidity of Maastricht Euro criteria, is deepening and Finance Market- Period: 2007- deteriorates further. So we think that it proves the need for penetrating new sort of financial innovations, techniques 2013 and tools. It is also our modest propositions that might be recorded some theoretical and practical contributions, revisions and amendments to overcome these current Ferhat Sayim troublesome critical financial problematic.

One of our main aim in this paper, to study in the Introduction framework of the alternatives of the financial institutions and other options. These options could be asserted as a vibrant and practicable well established choice as a non- The set of governing principles for interest free banking in western model- different from the classical western interest Turkey is dated as the end of the year 1983. With the based dominant banking system in the world. Moreover, decree dated 16.12.1983 and numbered 83/7506, the that participation banking systems’ growth, progression and foundation of Private Finance Institutions is laid. increase with its resourceful bulk of dealings and shares within the financial market. In addition, we intended to In Turkish their former name Private Finance Institutions, delineate the basic functioning structures, rules, norms, or with the new name, Participation Banks haven’t principles, procedures, operations of the Alternate banking authorized or empowered to collect deposits but receive system in the financial market. fund through special current accounts or profit and loss participation accounts, and utilize fund through methods After that, we have applied as a descriptive, explanatory, such as production financially assist, community of profit discursive and comparative analytic methodology to and loss, financial leasing, buying and selling documents expound the matter in factor. Having provided literature against payment. Even if these institutions are have been reviews then we have concentrated on Turkey as a model permitted in Turkey since 1984, they have been limited in state in that banking system practice; at which, what kind terms of both quantity and scale (Central Bank of Republic of instruments and tools used by referring basic indicators, of Turkey, 2005). data and information related to the development, flourish and share of that sector within the sum of banking and Participation Banks are banks operating in financial sector, financial system in Turkey. supporting real economy and offering banking service. Furthermore, that participation banking system positions Participation banks gather funds from saving owners, use has been researched in the country. Thus, it has been them in industrial and trade sectors according to the interest explicated more concerns on how it can be investigated by free financing ethics and shares the profit or loss with mentioning its credits, deposits, financing formulation saving owners. The word “participation” in their name systems and commitments with the banks, customers and expresses that this type of banking is based on the opinion investors of the alternate banking system in the country’s of participation to profit and loss (The Participation Banks financial order. At last, we have attempted to make clear Association of Turkey-FAQ, 2010). and summarize the concepts, definitions, expositions, demonstrations, rules, assets, liabilities, equities etc.. by Participation banks provide as a means of transformation of giving special cultural internalizations about the saving to capital. Proportional to their advantage of organizational and operational activities of the participation working with a greater number of branches, they also give banks both similarities and differences, too; so as to draw standard banking services such as investment consulting, the attentions of the new researchers and studies in that safe deposit box, money transfer service, giving check situation. book, mediating cash proceeds etc (Battal, 2007, p. 57). At present, diversity of such services given by participation I.Participation Banking in The Literature banks is equal or similar to the standards of other banks. Banking methods of this system generally called “Islamic Currently, in this article, we are going to elaborate as the Banking” in the international literature. These banking unit of analysis, the Participation Banks, new financial operations are methods such as various kinds of project instruments. In the middle of the first quarter of 21th partnership and others based on prohibition of interest century, there has been occurred a new World Financial (Moles & Tery, 1999, p. 304). As Islamic banking is part of Crises. In fact, those crises mainly influenced the capitals the banking system of a country, its performance may of the financial centre in the West. For those countries affect the soundness and stability of the banking system which heavily affected by this economic crises, forced (Mariani; 2008, p.4). Islamic banks in general referred to

the three types of. (1) Development banks, (2) Islamic loyalty and brand loyalty must be earned (Omar & Ali, banks in special purpose, (3) Islamic Commercial Banks. 2010, p. 25). Participation banks may categorized in Islamic Commercial Banks groups (Canbaş & Doğukanlı, 2007, p. 237). Therefore, the determination of the relative performance between Islamic banks, and between Islamic and Moreover, for conventional banks with Islamicbanking conventional banks will assist policy makers in devising a windows, the performance of these windows has certain strategy to improve the performance of a banking system in influence on the performance of conventional banks a country and help managers in the conventional banks that (Mariani; 2008, p.4). Islamic bank works as a trading choose to have Islamic banking windows besides concern and financial intermediary to perform interest-free conventional banking to improve bank activities purely according to principles of Sharia’h. It is a performance.(Mariani; 2008, p.4) welfare organization that promotes business and trade activities by pooling the financial resources for the sake of The Islamic banking and finance systems in West will profit and loss for mutual benefit (Ahmad, Humayoun, & continue to grow in areas like Sukuk, Takaful, hedging Hassan, 2010, p. 8). funds, mutual funds, equity & asset management, corporate finance, wealth and asset management. These high street Participation or Islamic banks are not institutions peculiar banks are far more accessible and popular, and all offer to Turkey. All around the world, especially in Muslim similar services. The main reason for the struggle is that, countries, there are many financial bodies operating the Islamic bank is introducing an entirely new banking according to a similar system. Even if the system consisting model into a country that has been built around an existing of such kind of institutions operating on the basis of banking system that has been around for a long time (Malik enterprise of profit and loss is known as “interest free & Malik, 2011, p. 184). banking” or “Islamic banking” in the world, it is taken first as “special finance house”, and then as “participation The existence of differences in the operation of Islamic banking” in the Turkish set of laws. banking between countries is partly attributed to differences in the approach of regulating Islamic banks and The first modern experiment with Islamic banking can be differences in the interpretation of the Shariah related to traced to the establishment of the Mit Ghamr Savings Bank financial transactions by different schools of Islamic in Egypt in 1963. During the past four decades, however, jurisprudence. (Mariani; 2008, p.4) Islamic banking has grown rapidly in terms of size and the Both mobilisation and investment of funds should be number of players. Islamic banking is currently practiced in conducted in accordance with the principles of Islamic more than 50 countries worldwide. In Iran, Pakistan, and Shari'a".(Al-Baraka; 2015) Sudan, only Islamic banking is allowed. In other countries,  Prohibition of Interest or Usury such as Bangladesh, Egypt, Indonesia, Jordan and  Ethical Standards Malaysia, Islamic banking co-exists with conventional  Moral and Social Values banking. Islamic banking, moreover, is not limited to  Liability and Business Risk Islamic countries (Chong & Liu, 2009, s. 125-126).

There is no standard way of grouping Islamic Financial Institutions, but in terms of services rendered, today Islamic Financial Institutions can be divided into the following broad categories:( (Al-Baraka; 2015)

1- Islamic Banks. 2- Islamic Windows.

3- Islamic finance/Investment 4- Islamic Mortgage Banks. companies.

5- Takaful Companies. 6- Mudarabah

Companies. 7- Islamic investment funds

But, when we look at the books of financial institutions generally we can’t see these institutions among the financial institutions (Rose & Marquis, 2009). (Burton, Nasiba, & Brown, 2009) (Mishkin & Eakins, 2009) On the other hand Islamic banks ability to withstand the global downturn has fuelled an expansion of Islamic finance around the world. Islamic banks have learned that customer

The Participation Banking As A Different Banking Method And The Developing of it’s in The Turkish Finance Market-Turkish Participation Banking For 2007-2013

Table-1: Comparison between Riba (Interest) and has been in liquidation, since 2001. We should underline Profit the fact that the bankruptcy of this finance bank negatively Riba(Interest) Profit influenced the other participation banks, too. 1.When money is “charged”, 1. When money is used in its imposed positive and productive activity (e.g., in Asya Finance Institution Inc: Founded in 1996. After the definite result is Riba trading), its uncertain Act no. 5411 came into effect, its name has been changed result is profit. to Bank Asya Participation Bank. 2. By definition, Riba is the 2.By definition, profit is premium paid by borrower to the difference between the After the Banking Act no. 5411 accepted on October 19, the lender along with revenue from production 2005 and published in the Official Journal on November 1, principal amount as the and the cost of production. 2005, the name “Private Finance Institutions” has been condition for the loan changed to “Participation Banks”. And the name “Private 3. Riba is prefixed, and hence 3. Even if a sharing ratio is Finance Institutions Association” has been changed to there is no uncertainty on the agreed in advance, profit “Participation Banks Association of Turkey” which has part of either the givers or the is still uncertain, as its also created their own insurance funds so as to prevent their takers of loan amount is not known until depositors’ loss; because of any of its member’s probability the activity is completed. of bankruptcy at which they could compensate similar to 4. Riba cannot be negative, it 4. Profit can be positive, other banks. This insurance include some limits like deposit can at best be very low or zero or even negative banks insurance. zero 5. From Islamic Shariah 5. From the Islamic Participation banks operating today among the institutions point of view, it is Shariah point of view, it is mentioned above are Albaraka Türk Participation Bank haram(prohibited) halal(allowed) Inc., Kuveyt Türk Participation Bank Inc., Asya Source: Jammeh.B.E.; 2010, 15 Participation Bank Inc. and Türkiye Finans Participation Participation Banks Founded in Turkey Bank Inc.

The set of governing principles for interest free banking in II.Methods of Fund Collection Turkey is dated as the end of the year 1983. With the decree dated 16.12.1983 and numbered 83/7506, the These organizations gather funds in the type of sharing foundation of Private Finance Institutions is laid. accounts or current accounts to operate separately within each maturity group (Parasız, 2009, p. 251).Main matter of Private Finance Institutions adopted by Turkish society in liability side in the balance sheet of all firms consist of short time showed a rapid improvement in terms of equity capital and loan capital. Equities are funds given by collected funds, volume of work and project capacities. partners as capital or profit which is not distributed etc. These finance institutions in Turkey are: These express resources belonging to the capital owners. However the share of equity item within the total capital is Albaraka Türk Special Finance Institution Inc.: The first not so high in finance institutions and especially in banks in finance institution of interest free banking in Turkey, comparison to other businesses. It can be read as follows: Albaraka Türk Participation Bank, finished its foundation An important part of resources of banks consist of loan in 1984, and began its operations as of the beginning of capital. Because of the banking system is based on this. 1985. Its name is still Albaraka Türk Participation Bank. Bank or participation bank transforms funds collected from (Albaraka Türk–About Us, 2010) real or legal entities to loan. And the collected funds are naturally loan capital. Therefore, the growth of a bank Kuveyt Türk Evkaf Finance Institution Inc.: Kuveyt Türk, depends on that it collects funds as much as possible in founded in 1989 at the status of Special Finance Institution, order to be able to give loan as much as possible. In deposit changed its name in May 2006 as Kuveyt Türk banks, fund collection is mostly realized through promise Participation Bank Inc (The History of Kuveyt Türk, 2010). of interest. However participation banks cannot promise any future interest which would mean a predefined return. Anadolu Finance Institution Inc.: It began its operations in 1991 in Ankara. It is founded with domestic capital. The sources of funds for the banks are deposits, capital and equity. Deposits can be divided into transaction deposits or Faisal Finance Institution Inc.: Founded in 1985. In 2001, investment deposits which are respectively equivalent to Faisal Finance Institution Inc. It has been taken over by current and fixed deposit accounts in conventional banking. Ülker Group, its trade name was changed to Family In the former, banks act as the safe-keeper which promises Finance Institution Inc. In 2005, Anadolu Finance the nominal value of the transaction deposits but does not Institution Inc. and Family Finance Institution Inc. merged guarantee returns on this liability and is known as wadiah. under the name of Türkiye Finance Participation Bank Inc. In the latter, depositors are not guaranteed nominal value nor paid with a fixed return. Instead, depositors are İhlas Finance Institution Inc: Founded in 1995. As a result considered as shareholders, hence share profits or losses of the 2001 economic crisis, it went on bankrupt and its from the investment account with the bank. In addition, the official authorization has been cancelled. That bank still

proportion of the profits or the loss to be distributed is pre- which are mostly dynamic are not proper to bring return determined and agreed by both parties. (Mariani; 2008, p.4) and to promise interest. However banks can use these capitals as equity capital after determining average amounts held in these accounts and keeping the needed reserves. Chart 1- Application of Funds (Islamic) Participation Accounts or Saving Account or General Mudaraba Account:

Interest-based banks receive deposits from clients in return for being paid a fixed interest rate. These deposits are considered to be a loan from the depositors and, thus banks must pay a predetermined rate of interest based upon the daily average balance. So, under the interest-based banking system, the relationship between the bank and its depositors is essentially that of a debtor and creditor. In the case of checking deposits, depositors are provided with a check book. In most cases, a depositor may withdraw all or part of the funds on deposit at any time. In some instances, depending on the type of account, notice may need to be provided to the bank for a withdrawal of money exceeding a specified amount. The Mudaraba account of Islamic banks is different from the checking account of an interest- based bank. Mudaraba is a form of business contract where one party supplies money and the other manages the Source: (Aminuddin, I.2010) business by investing labor and time. Profits generated Participation banks collect funds mainly through three from the venture are shared by both in a proportion agreed ways below. In addition to them, there are also investment upon at the time of contract. However, in this arrangement, accounts based on gold or precious metals. the financier is solely responsible for any loss that may be incurred. The financier of the business is known as Sahib al Current Account or Al-Wadiah Account Mal, Rabbul Mal or owner of the capital and the manager of the business is called Mudarib or entrepreneur. Islamic banks receive deposits in their Al-Wadiah account. (Islamibank, 2015) This account is similar to the demand deposit account of interest-based banks. Conventional interest-based banks do Participation accounts are funds of interest free banks not pay interest on this type of deposit account. In addition, which belong to physical or legal entities, money in which depositors may withdraw all or a part of the funds is deposited as Turkish Lira or foreign currency against deposited in this account without restriction. The term Al- contract of profit/loss participation account, and which Wadiah means deposit of money allowing somebody to result in profit/loss participation. Interest free banks pay claim the funds in the account. The bank as trustee amount of balance equivalent to unit account value to the preserves and safe keeps the funds deposited. Thus, account holder according to the state of profit/loss. Payees depositors feel safe keeping their money with the bank of interest free banks have no right to demand anything because the bank provides assurance of returning their from funds accumulated in these funds (Akın, 1986, pp. money on demand. When an individual opens an Al- 288-299). Returns remaining back from the funds deposited Wadiah account, he agrees to allow the bank to lend these by participation account holders are distributed to account funds to entrepreneurs seeking financing for their products holders after deduction of losses stemming from returns or activities. In addition, the depositor understands that the obtained from funds utilized in pools constituted after bank may earn a profit from its lending activity. However, certain criteria are handled such as their fixed terms and any losses incurred from this investment activity are totally deposit date. When these returns are distributed, certain borne by the bank. The depositor is not liable for any losses shares of these returns are hold by participation banks as incurred from this lending activity. (Islamibank, 2015) management share.

These accounts are similar to checking accounts in interest Special Fund Pools or Investment Account or Special banks. Account holders open current account to be free of Mudaraba Account: trouble to protect their money against theft, loss etc., and have opportunity to keep their money in a safe place. They When an Islamic bank receives a Mudaraba deposit for also use services provided by their bank such as use of investment in some specific business, sector, or project, the commercial check book, Money transfer, collection of deposit is called a "Special Mudaraba Deposit". In this check and bills. With the help of these accounts, services case, an Islamic bank, while receiving deposits, comes to are provided such as payment and so on, parallel to needs an agreement with the depositors that the money to be of commercial and daily life. Therefore, these accounts

The Participation Banking As A Different Banking Method And The Developing of it’s in The Turkish Finance Market-Turkish Participation Banking For 2007-2013

received will be invested in some specific business such as definite methods of fund utilization and certain sectors used the fertilizer or salt business; or in some specific sector like by other banks when utilizing collected funds. the industrial sector, textile sector, export-import sector; or in some specific investment sector of the bank such as real Fund Utilization Methods based on Commerce. estate, shipping or a special project. Profits earned from these types of specific projects are distributed between the The main fund utilization methods of participation banks bank and the Special Mudaraba depositors based a can be listed under two titles: The first of them is Fund previously agreed to percentage. As before, in the event of Utilization Methods based on Commerce. Also deposit a loss, the depositors share the loss in an amount banks can use these types of financing. However there are proportional to their deposits in the account (Islamibank, some points in certain procedures such as handover of 2015). money which participation banks pay more attention. The important points here are that it has to be an operation In Turkey Participation Banks, according to the 60th article necessarily based on trade of goods or service, and that 7th paragraph of the Banking Act, can create special fund payment to be made has to be delivered to the firm which account pools for 3 or more months by collecting funds in sells the goods. private accounts in order to be utilized for financing planned projects or other investments, without the necessity Private Funding Support of adhering time or types determined by the Central Bank of the Republic of Turkey. Participation accounts belonging Participation bank pays the price of goods or services – to funds collected in this manner are operated in different bought by real entities directly from sellers for personal accounts independent from other accounts and with needs such as vehicle and apartment – in the name of the different time. No transfer is allowed from the collected customer to the seller, with the condition of not to be used funds to other period groups. The related authority or in funding of commercial activities, and in return the buyer institution has to be informed in 15 days after opening or is charged with a debt (The Participation Banks Association closing dates, regarding special fund pools. At the end of of Turkey, 2008). the period of funding, special fund pools get closed**. Maybe this method called as Bai-Muajjal. It means credit sale of goods by the bank to the customer. Such contracts provide for a margin of profit or mark-up to the bank as Table-2: Islamic Banking Accounts at a Retail Level mutually agreed upon by the buyer (client) and the seller Account Purpose of Deposit Use of Funds (bank). Goods are kept at the disposal of the Type customer/buyer and the sale price can be paid either in Current Safety and Trust Qard al-Hassan lump sum or in instalments. It can also be used for both Account internal and external trade operations. Like Murabaha, Bai- Saving Readily available, Finance small or Muajjal is also a short-term commercial investment and Account small investment medium size therefore, the concept of discounting technique is not really return investments applicable here (Islamibank Limited, 2015). Investment Large investment Finance large-scale Account return or partial (up or long term Financial Rent to total) loss investment Lease is defined as “an agreement in which one party gains Source:Jammeh.B.E.; 2010, 19 a long-term rental agreement, and the other party receives a

form of secured long-term debt” (www.investopedia.com). III. Fund Utilization Methods The lessee gains a long-term contract for the use of an

asset, and the lessor is assured of regular payments for a specified number of years. Under the conventional leasing This sector is a service sector. With its operations, it is a system, the lessee pays the specified rentals and a fixed sector aiming to utilize fund surplus – collected from interest rate over specified period of time for the use of entities which have no opportunity or ability to use funds in specific assets. The conventional bank takes the risk of their hands – for paving the way for operations based on interest rate changes (Addave,2012, p.26). commercial activities, and to take a share from the added In the operation which is called “leasing” today, the person value created. Therefore funds collected in order to create who wants to buy a good demands that this good is bought added value have to be used for production of goods and by the participation bank and rent to this person after the service. Otherwise, it is clear that money etc. held in agreement between this person and the participation bank. lockboxes would not increase where they stay, and not However it is decided the customer of the participation create added value. The most important difference of bank will be the owner of that good after a certain period of participation banks is that they prohibit for themselves rent and of paying rents. In this way, the good with financial renting is used by the customer demanding financial renting, and is owned by the bank. At the end of rent period, the ownership is handed over. As investment **Published in Official Journal no. 26333. Banking banks, also participation banks can realize financial renting Regulation and Supervision Agency (BRSA) / Bankacılık operations without founding a separate company. Düzenleme ve Denetleme Kurumu (BDDK), article 7, 2006

depositors by the bank. However, there is some confusion Murabaha: (Instalment Sale) about the issue. Those literatures that I have obtained mostly agreed that the capital provider bears the entire Murabaha is another participating form used by the Islamic capital losses; however, according to Aramco World bank. In a murabaha contract, the seller informs the buyer magazine (May-June 1987), profits and losses are to be the cost of the goods, services or producing a specified shared by the bank and the entrepreneur. This Aramco product.Parties negotiate a mark-up or profit margin and writing is a minor issue because all these other academic total cost is usually paid in installment. The murabaha is literatures are in consensus about the issue and they agreed usually short-term contract. This mode of participation that the provider of capital has to bear any financial enables the Islamic bank to enter the trading cycle as a losses(Addave,2012, p.24). buyer of goods, raw materials and equipment or any assets. For example with murabaha contract, a client requests the Under this Islamic mode of financing, the bank provides all bank to buy a certain asset at a specific price, and promises of the capital for the project while the Mudarib(client) only to buy it from the bank at agreed higher price at a set of puts contributes his efforts and skills. Under this time(Addave,2012, p.25). Murabaha used in banking is sale arrangement, the bank and the client share profits in a of goods with an order of sale in which payment is made predetermined ratio, but any loss is solely the responsibility some time after delivery of the goods transacted. A of the bank unless the loss has been caused by the customer and a bank sign a pre-contract which proposes negligence or willful act of the client. The discounting that the customer buys a good from the bank. After the techniques are applicable to Mudaraba in the same manner contract, upon the customer’s written demand, the bank as that of Musharaka(Islamibank Limited, 2015). buys the mentioned good in cash from the seller, and sells it to its customer in accordance with the conditions agreed Muşareke: (Joint Capital Partnership or Capital upon before (Akın, 1986, p. 159). So, participation bank Invesment) mediates trade, buys the good from the seller in cash, and sells to its customer for the account. In the musharaka participation, the bank is not the only Fund Utilization through Profit and Loss Partnership who provides the funds but at least one or more partners Method contribute to the joint capital of investment. For example

the bank enters into a partnership with a client and both Mudaraba: (Venture Capital) contribute the equity capital. Both the bank and the client Mudaraba is a other method of fund utilization used by invest in varying proportion and they both have the rights interest free banks very commonly. One party gives its to participate in the management of the project or the labor, know-how and experience (entrepreneur), and the enterprise. From the perspective of corporate governance, other party gives capital (interest free bank). In this the bank has the rights to exercise its voting rights and both method, real and legal entities present their applicable the bank and partner also have their representatives in the projects to the bank. The manager accepted and funded by the bank is called “mudarib”, and the person or institution board of directors. This kind of mode is different from the funding or supporting the project is called “Rabbul-mal”. conventional banks’ participation as it is based on After signing a contract with the mudarib, Rabbul-mal profit/loss sharing arrangement. In this mode of (interest free bank) has to keep ready the amount of capital participation, the bank and partner share the profit or losses mentioned in the contract, in accordance with mudarib’s according to their equity shareholdings(Addave,2012, demand. Other than conditions mentioned in the contract, p.22). bank has no authority to interfere in transactions realized by the project owner. However in case of emergence of Selem Sale: (Current Sale of Future Delivery Goods or danger of loss because of unplanned and irregular work, the Future Markets and Sales) bank can make some initiatives in order to prevent loss.

Normally, it can control accounts every time, and demand all formal and informal bookings. Profit obtained at the end of mudaraba operation is shared among Rabbul-Mal “Selem sale” means buying a good on account with another guaranteeing funding and mudarib using fund according to good bought or sold in cash. The bank buys a good by the proportion determined before. In case of any loss, this paying its price in cash which is going to be delivered to loss is met by Rabbul-mal (Küçükkocaoğlu, 2010, p. 8). the bank in a future date agreed upon in the contract between the bank and the seller. A different style of selem An Islamic bank for example lends money to a client to sale, as in funding purchase of building, machinery and finance a factory. In return the bank receives pre-specified equipment, can be used also in purchase of consumer percentage of the factory’s net profit every year. This share durables in case of that conditions are proper in terms of of the profits obtained from the entrepreneur provides for economy. In other words, this finance technique can be repayment of the principal and profit to pass to the used in order to fund industry, trade and agriculture (Akın, 1986, p. 163).

The Participation Banking As A Different Banking Method And The Developing of it’s in The Turkish Finance Market-Turkish Participation Banking For 2007-2013

According to another definition Bai-Salam means forward IV. Personnel and Branch Structure of purchase of the potential product. Under this arrangement, Participation Banks the bank enters into a contract to purchase a certain quantity of the product or commodity that is to be delivered Growth of Branch Numbers to the bank at a future date. However, the payment for the aforesaid goods is made in advance. The price of the goods The number of deposit banks founded in Turkey is 32 in must be reasonable and the bank is free to sell the goods in the end of 2013. Their 3 of them are based on public the open market to earn a good profit (Islamibank Limited, capital, 11 of them are based on domestic private capital, 2015). and 17 of them are based on foreign private capital, 1 of them belongs to SIDF. Additionally, there are 13 According to another definition, selem is the sale activity development and investment banks founded in Turkey. If which is made with money in cash and goods on account. we take also 4 participation banks into consideration, it is In selem, type, quality, amount, price, delivery place and seen that the number of banks in Turkey reaches to 49. date of the product have to be determined in the contract. The branches number of deposit banks was 7.570 in 2007, With the help of selem, goods which will be produced in a and reached to 10.981 with an increase of 45% as of the future date are sold, and the needed money is obtained. On end of 2013. The number of branches of participation banks the other hand, customer buys a good which it will need in was 422 in 2007, and reached to 966 with an increase of a future date. So, both parties meet their needs without 129% as of the end of 2013. using interest (Yılmaz, 2010, p. 14). For example, a farmer which needs money is supported by the bank in terms of Currently 32 private deposit banks have 343 branches on an capital, and the bank sells the yield in the market. average, each of 4 participation banks has 242 branches on an average in the end of 2013. However in terms of the Documents Against Payment increase rate of branches from 2007 to 2013, it is seen that participation banks reached almost three times bigger increase rate of branch numbers than deposit banks. Shortly, It means that a participation bank buys goods The table below shows the position of participation banks abroad in the name of its customer who gave him order, within themselves. and sells them to its customer.

This type of fund use operation method is used for funding Table-3/a: Growth of Branch Numbers, 2007 of foreign buy and sell. According to the agreement signed -2013 between participation bank and the party using fund, the participation banks buy documents touching payment in END cash, and sells to one using fund on account with a higher OF ALBARAKA BANK KUVEYT TÜRKİYE TOTAL price. This type of finance technique is mainly based on the YEAR TÜRK ASYA TÜRK FİNANS SUM method of murabaha (forward sale) (Akın, 1986, p. 290). Average However, methods and documents used in foreign trade 2007- gain importance at that point. Documents are used in foreign trade especially in operations of documented credit. 2013 117 189 162 189 657 They are documents which assure importer’s custom clearance of goods sent by exporter. Therefore, these 2013 167 281 268 250 966 documents which make possible that goods entering in customs in the country of exporter are delivered by customs 2012 137 250 221 220 828 authorities are undertake the ownership of goods as documents with status of valuable papers. 2011 123 200 180 182 685

2010 109 175 141 182 607

2009 101 158 121 180 560

2008 100 143 113 174 530

2007 80 118 87 137 422

Table-3/b: Increase Rate from Previous Year at Branch Table-4/a: Employment in the Banking Sector, 2007- Numbers, 2007-2013 2013 2007 2008 2009 2010 2011 2012 2013 Increase Participatio 9.21 11.0 11.8 12.70 13.85 15.3 16.7 Rate n Banks 5 32 02 3 7 56 12 END BAN TÜRKİY ALBARAK KUVEY From Deposit 153. 166. 167. 173.1 176.5 181. 192. OF K E A TÜRK T TÜRK Prev.Yea banks 212 325 063 33 76 197 219 YEAR ASYA FİNANS >Public 41.0 43.3 44.8 47.23 50.23 51.5 54.4 r Total banks 56 33 56 5 9 87 66 Sum >Private 75.1 82.1 82.2 83.63 89.04 90.6 93.3 banks 24 58 70 3 7 12 65 Averag >Fund 325 267 261 252 243 226 229 e 2007- banks 2013 15% 18% 19% 11% 16% >Foreign 36.7 40.5 39.6 42.01 37.04 38.7 44.1 banks 07 67 76 3 7 72 59 2013 22% 12% 21% 14% 17% Developmen 5.32 5.27 5.33 5.370 4.842 4.90 5.24 t and 2 3 9 1 6 investment 2012 11% 25% 23% 21% 21% banks Total 172. 182. 184. 191.2 195.2 201. 214. 2011 13% 14% 28% 0% 13% 391 630 204 06 75 454 177

2010 8% 11% 17% 1% 8% Source: Composed from data provided by (BAT, The Bank Association of Turkey, 2011) (BAT, The Bank Association 2009 1% 10% 7% 3% 6% of Turkey, 2012-13) (PBAT: The Participation Banks Association of Turkey, 2012-13). 2008 25% 21% 30% 27% 26% As of the end of 2013, the average personnel number for branch in participation banks is as follows: 2007 27% 30% 10% 12% 19% Table-4/b: The Average Personnel Number For Branch Source: Composed from data provided by (BAT: The Bank In Participation and Deposit Banks, 2007-2013 Association of Turkey, 2011) (BAT, The Bank Association Bank Total Personnel Average Average Average of Turkey, 2012-13) (PBAT, The Participation Banks No./Branch No. Pers.N. Personnel Personnel Association of Turkey, 2012-13). for No. for No. for Branch Branch Branch Growth of Personnel Number 2011 2012 2013 Albaraka 18,3 As of the end of 2013, totally, 214.177 employees are Türk 2013(3.057/167) 21,1 20,1 employed in the banking sector in Turkey. Personnel Bank 18,1 number of deposit banks was 153.212 in 2007, and reached Asya 2013(5.074/281) 22,7 20,3 to 192.219 with an increase of 25 % as of the end of 2013. Kuveyt 17,3 The number of personnel of participation banks was 9.215 Türk 2013(4.642/268) 18,5 17,8 in 2007, and reached to 16.712 with an increase of 81% Türkiye 16,0 as of the end of 2013. Looking at the growth rates of the Finans 2013(3.990/250) 18,6 16,3 number of their personnel from 2007 to 2013, it is seen that Total 17,4 the growth rate of personnel of participation banks is Sum 2013(16.763/966) 20,2 18,5 almost 3,2 times more than deposit banks Deposit 17,5 Banks 2013(192.219/10.981) 18,0 17,8

Actually, Bank Asya Participation Bank has the biggest personnel number and it has biggest average personnel number with Albaraka. In deposit banks, average personnel number reached by dividing the total personnel number to the branch number is 18 in the end of 2011. The same average is 20,2 in participation banks. This means that participation banks employ 12 % more employees for branch than deposit banks for 2011. But both of them is equal almost in the end of 2013. The average personal decreased in the end 2012 and 2013 for participation banks. Rapidly increase in the brunch number seems the cause of the decrease for average brunch personnel number.

The Participation Banking As A Different Banking Method And The Developing of it’s in The Turkish Finance Market-Turkish Participation Banking For 2007-2013

Table- 5/a: Growth of Personnel Number (Participation Banks), 2007-2013 V. Evaluation of Sectoral Quantitative Data Turkish Currency Funds BAN END TÜRKİY ALBARAK K KUVEY TOTA OF E In the table, Participation banks showed a quite better A TÜRK ASY T TÜRK L SUM YEAR FİNANS performance as of the end of 2013 compared to 2007 in A funds of Turkish currency. As of the end of 2013, deposits of Turkish currency reached to approximately 37 billion Averag Turkish Lira after an increase of 366 %. Among e 2007- participation banks, Bank Asya has the biggest fund of 2013 2.258 4.309 3.035 3.359 12.960 Turkish currency. But highest average grown rate owner is Kuveyt Turk. The second high performance belongs to the 2013 3.057 5.074 4.642 3.990 16.763 Albaraka Türk.

2012 2.758 5.064 3.939 3.595 15.356 Table-6/a: Collected Turkish Currency Funds in 2011 2.601 4.548 3.326 3.382 13.857 Participation Banks, 2007-2013 (1000TL) END KUVE TÜRKİ 2010 2.175 4.266 2.850 3.403 12.694 ALBARA BANK TOTAL OF YT YE KA TÜRK ASYA SUM YEAR TÜRK FİNANS 2009 1.935 4.074 2.447 3.346 11.802 Avera 2008 1.796 3.806 2.245 3.185 11.032 ge 2007- 6.765.57 4.606.55 5.646.76 21.167.2 2007 1.481 3.329 1.794 2.611 9.215 2013 4.148.378 7 4 9 77

Source: Composed from data provided by (BAT: The Bank 10.496.2 9.327.03 9.641.97 36.984.0 Association of Turkey, 2011) (BAT: The Bank Association 2013 7.518.851 22 2 8 83 of Turkey, 2012-13) (PBAT: The Participation Banks Association of Turkey, 2012-13). 9.241.39 6.768.53 7.444.77 28.990.2

2012 5.535.572 1 0 2 65 Table-5/b: Increase Rate from Previous Year at 7.813.46 5.215.35 6.233.35 24.059.9 Personnel Number (Participation Banks), 2007-2013 2011 4.797.751 3 7 4 25 Increase BAN Rate 7.662.28 4.496.12 5.712.66 22.230.0 TÜRKİY 2010 4.358.934 END OF ALBARAK K KUVEY From 8 6 2 10 E YEAR A TÜRK ASY T TÜRK Prev.Ye FİNANS A ar Total 5.979.82 2.987.41 4.660.03 16.918.0 2009 3.290.809 Sum 5 5 5 84

Average200 3.603.48 2.111.41 3.300.25 11.044.7 2008 2.029.617 7-2013 15% 12% 19% 9% 13% 7 4 2 70

2013 11% 0% 18% 11% 9% 2.562.36 1.340.00 2.534.33 7.943.80 2007 1.507.109 3 3 0 5 2012 6% 11% 18% 6% 11%

2011 20% 7% 17% -1% 9%

2010 12% 5% 16% 2% 8%

2009 8% 7% 9% 5% 7%

2008 21% 14% 25% 22% 20%

2007 28% 40% 29% 19% 30%

3.156.7 2.370.84 2.222.45 9.923.88 Table-6/b: Increase Rate from Previous Year at 2009 2.173.836 Collected Turkish Currency Funds in Participation 53 2 5 6 Banks, 2007-2013 (1000TL) 2.239.3 1.957.95 2.012.29 8.165.08 2008 1.955.493 Increase 34 8 6 1 BAN Rate END KUVEY TÜRKİY ALBARAK K From 2.135.3 1.588.30 1.784.57 6.999.26 OF T E 2007 1.490.999 A TÜRK ASY Prev.Ye 87 5 5 6 YEAR TÜRK FİNANS A ar Total Sum

Averag Table-7/b: Increase Rate from Previous Year at Foreign e 2007- Currency Funds, 2007-2013 (1.000TL) 2013 36% 32% 40% 28% 33% Increase BAN Rate 2013 36% 14% 38% 30% 28% END KUVEY TÜRKİY ALBARAK K From OF T E A TÜRK ASY Prev.Ye 2012 15% 18% 30% 19% 20% YEAR TÜRK FİNANS A ar Total Sum 2011 10% 2% 16% 9% 8%

Averag 2010 32% 28% 51% 23% 31% e 2007- 2013 23% 27% 28% 18% 24% 2009 62% 66% 41% 41% 53%

2013 36% 23% 29% 38% 30% 2008 35% 41% 58% 30% 39%

2012 14% 42% 27% 22% 28% 2007 60% 56% 48% 44% 51%

2011 29% 31% 63% 22% 36% Source: Composed from data provided by (BAT, The Bank Association of Turkey, 2011) (BAT, The Bank Association 2010 16% 11% 22% 21% 17% of Turkey, 2012-13) (PBAT, The Participation Banks Association of Turkey, 2012-13). 11% 41% 21% 10% 2009 22% Foreign Currency Funds, 2007-2013 Table- 7/a: Foreign Currency Funds, 2007-2013 2008 31% 5% 23% 13% 17% (1.000TL) 2007 23% 37% 9% 2% 17% END KUVEY TÜRKİ ALBARA BANK TOTAL OF T YE Source: Composed from data provided by (BAT: The Bank KA TÜRK ASYA SUM YEAR TÜRK FİNANS Association of Turkey, 2011) (BAT: The Bank Association of Turkey, 2012-13) (PBAT: The Participation Banks Avera Association of Turkey, 2012-13). ge 2007- 4.305.0 3.885.08 3.066.41 14.126.0 The case in foreign currency funds is some different. 2013 2.869.541 22 6 1 60 Among participation banks, Bank Asya has the biggest fund and Türkiye Finans has the highest increase of 8.015.3 7.703.67 5.499.74 26.226.1 performance of foreign currency in 2013. Kuveyt Türk has 2013 5.007.361 41 0 0 12 the highest average growing rate in the foreign funds. The second participant bank is Kuveyt Türk in the total foreign 6.500.4 5.986.51 3.984.76 20.161.1 funds. As of the end of 2013, Foreign currency deposits of 2012 3.689.446 67 3 4 90 participation banks reached to approximately 26 billion Turkish Liras after an increase of 275 % compared to the 4.583.5 4.702.97 3.275.81 15.809.3 end of 2007. 2011 3.246.996 80 0 1 57

3.504.2 2.885.34 2.685.23 11.597.5 2010 2.522.656 94 7 4 31

The Participation Banking As A Different Banking Method And The Developing of it’s in The Turkish Finance Market-Turkish Participation Banking For 2007-2013

Total Funds Collected, 2007-2013 2012 15% 27% 29% 20% 23%

Bank Asya is the leading participation bank with an amount 2011 17% 11% 34% 13% 18% of 18.5 billion Turkish Lira; In terms of total funds collected as the end of 2013. Kuveyt Türk, Türkiye Finans 2010 26% 22% 38% 22% 26% and Albaraka Türk follow Bank Asya respectively. As of the end of 2013, total funds collected by participation banks 2009 37% 56% 32% 30% 40% reached to approximately 63 billion Turkish Lira, after an increase of 323% compared to the end of 2007. Figures of 2008 33% 24% 39% 23% 29% participation banks and deposit banks are shown below which facilitates to make a relative analysis between them. 2007 39% 47% 24% 23% 33%

Source: Composed from data provided by (BAT: The Bank Table-8/a: Total Funds Collected, 2007-2013 (1000TL) Association of Turkey, 2011) (BAT: The Bank Association END TÜRKİY of Turkey, 2012-13) (PBAT: The Participation Banks ALBARAK BANK KUVEY TOTAL OF E Association of Turkey, 2012-13). A TÜRK ASYA T TÜRK SUM YEAR FİNANS Among participation banks, Albaraka has the highest Averag increase rate for total funds in 2013, but Kuveyt Türk has e 2007- 11.070.59 35.293.33 the highest increase rate in 2012,2011 and 2010. The 2013 7.017.919 9 8.491.640 8.713.180 8 second bank is Kuveyt Türk in the same 2013. Kuveyt Türk also has the highest average growing rate in the foreign 18.511.56 17.030.70 15.141.71 63.210.19 funds. 2013 12.526.212 3 2 8 5 Table-9: Fund Distribution of Participation and Deposit 15.741.85 12.755.04 11.429.53 49.151.45 Banks, 2007-2013 (Million TL) 2012 9.225.018 8 3 6 5 200 200 200 201 201 201 2013 2007- 12.397.04 39.869.28 7 8 9 0 1 2 2011 8.044.747 9.918.327 9.509.165 2013 3 2 Inc. Rate 11.166.58 33.827.54 2010 6.881.590 7.381.473 8.397.896 2 1 Deposit Banks 356. 453. 507. 614. 656. 770. 943.3 164% 984 485 258 681 276 016 13 26.841.97 2009 5.464.645 9.136.578 5.358.257 6.882.490 0 Participation 14.9 19.2 26.8 33.8 39.8 49.1 63.21 323% Banks 43 10 42 28 69 51 0 19.209.85 2008 3.985.110 5.842.821 4.069.372 5.312.548 1 Deposit+ 371. 472. 534. 648. 696. 757. 1.006 171% Participation 927 695 100 509 145 230 .523 14.943.07 2007 2.998.108 4.697.750 2.928.308 4.318.905 B. 1 Source: Composed from data provided by (BAT: The Bank Association of Turkey, 2011) (BAT: The Bank Association of Turkey, 2012-13) (PBAT: The Participation Banks Table-8/b: Increase Rate from Previous Year at Total Association of Turkey, 2012-13). Funds Collected, 2007-2013 (1000TL) Increase Table-10: Total Deposits in Deposit Banks, 2007-2013 BAN Rate KUVEY TÜRKİY (Million TL) END OF ALBARAK K From T E YEAR A TÜRK ASY Prev.Ye TÜRK FİNANS Year 2007 2008 2009 2010 2011 2012 2013 A ar Total Sum 1.000.000 356.9 453.4 507.2 614.6 656.2 770.0 943.3 TL 84 85 58 81 76 16 13 Average 2007-2013 29% 29% 33% 23% 28% Inc. Rate 27 12 21 7 8 23

2013 36% 18% 34% 32% 29%

When figures are compared as of the end of 2007 and 2013, Table-11/c: Increase Rate From Previous Year at Funds it is seen that participation banks have two times bigger Utilized by Participation Banks 2007-2013 percentage of increase than deposit banks on the percentage basis in terms of rate of increase. Participation banks taken Increase Rate into account, total fund + deposit in Turkey reaches 1.007 END ALBARAKA BANK KUVEYT TÜRKİYE From billion TL as of the end of 2013. OF TÜRK ASYA TÜRK FİNANS Prev.Year YEAR Total Funds Utilized, 2007-2013 Sum Table-11/a: Funds Utilized-Participation Banks and Deposit Banks In Turkey 2007-2013 (1000TL) Average 2007- 2007 2013 Inc.Rate 2013 28% 35% 36% 29% 31%

Deposit Banks Total Loans 262.572 939.772 258% 2013 33% 28% 40% 40% 35% Participation Banks Total Loans 14.072 62.029 341% 2012 16% 48% 28% 26% 22% Source: Composed from data provided by (BAT: The Bank Association of Turkey, 2014) 2011 16% 20% 48% 31% 28% (http://ebulten.bddk.org.tr/ABMVC/#) 2010 34% 33% 42% 11% 29% Increase rate of loan-fund utilization from the end of 2007 to the end of 2013 of participation banks higher than 2009 26% 31% 16% 29% 26% deposit bank’s rate. They are 341% and 258% in that order. 2008 30% 36% 34% 17% 29% Bank Asya is the leading participation bank with an amount of 20,6 billion Turkish Lira; In terms of funds utilized as 2007 44% 51% 47% 49% 46% the end of 2013. Türkiye Finans, Kuveyt Türk and Albaraka Türk follow Bank Asya respectively. It is seen Source: Composed from data provided by (BAT: The Bank that Kuveyt Türk and Bank Asya have the highest average Association of Turkey, 2011) (BAT: The Bank Association increase rate for last seven years. of Turkey, 2012-2013) (PBAT: The Participation Banks Table-11/b: Funds Utilized by Participation Banks Association of Turkey, 2012-2013).

2007-2013 (1000TL)

END TÜRKİY Growth of Net Profit ALBARAK BANK KUVEY TOTAL OF E Table-12/a:Growth of Net Profit, 2007-2013 (1000TL) A TÜRK ASYA T TÜRK SUM YEAR FİNANS END ALBARAKA BANK KUVEYT TÜRKİYE TOTAL OF Averag TÜRK ASYA TÜRK FİNANS SUM e 2007- 11.405.94 35.794.55 YEAR 2013 6.557.097 8 8.298.940 9.532.569 5 Average 20.614.10 16.595.84 18.172.35 67.415.97 2007- 2013 12.033.661 5 5 9 0 2013 150.763 230.885 172.933 218.419 772.999

16.085.16 11.848.41 12.971.05 49.979.82 2013 241.409 180.604 300.343 329.277 1.051.633 2012 9.075.183 8 9 8 8 2012 191.835 190.392 250.156 283.573 915.956 13.141.38 10.360.91 10.327.23 41.103.43 2011 7.273.906 0 7 2 5 2011 160.870 216.090 195.042 231.587 803.589

10.916.73 32.084.64 2010 134.379 259.962 159.648 205.529 759.518 2010 6.269.485 6.984.989 7.913.437 2 3 2009 105.626 301.281 127.133 171.388 705.428 24.911.20 2009 4.675.617 8.221.427 4.904.932 7.109.233 9 2008 136.242 246.529 104.086 160.633 647.490

19.733.85 2007 84.979 221.337 74.123 146.943 527.382 2008 3.716.977 6.253.160 4.237.341 5.526.380 8

15.332.94 2007 2.854.852 4.609.665 3.160.138 4.708.285 0

The Participation Banking As A Different Banking Method And The Developing of it’s in The Turkish Finance Market-Turkish Participation Banking For 2007-2013

Table-12/b: Increase Rate from Previous Year at Net Growth of Asset (Equity Capital) Profit, 2007-2013 (1000TL) Looking at the table regarding the equity capital growth, it is seen that participation banks increased their equity in Increase 2013 274% according to the 2007. Looking at deposit Rate END banks for the 2007-2013 period, their equity capital ALBARAKA BANK KUVEYT TÜRKİYE From OF increased by 157 % from 2007 to 2013. TÜRK ASYA TÜRK FİNANS Prev.Year YEAR Total Sum Table-14/a: Growth of Equity Capital, 2007-2013

Average (1000TL) 2007- END TÜRKİY 2013 22% 5% 38% 13% 16% ALBARAK BANK KUVEY TOTAL OF E A TÜRK ASYA T TÜRK SUM YEAR FİNANS 2013 26% -5% 20% 16% 15% Averag 2012 19% -12% 28% 22% 14% e 2007- 1.843.53 5.481.73 2013 922.148 6 1.223.189 1.492.863 6 2011 20% -17% 22% 13% 6% 2.510.94 8.832.64 2010 27% -14% 26% 20% 8% 2013 1.497.268 6 2.302.049 2.522.381 4

2009 -22% 22% 22% 7% 9% 2.349.27 7.376.80 2012 1.218.333 3 1.684.037 2.125.162 5 2008 60% 11% 40% 9% 23% 2.137.42 6.193.31 2011 1.004.251 1.437.978 1.613.659 2007 22% 51% 105% 5% 35% 6 4

1.941.66 5.457.08 Source: Composed from data provided by (BAT: The Bank 2010 852.635 1.256.685 1.406.096 Association of Turkey, 2011) (BAT: The Bank Association 7 3 of Turkey, 2012-14) (PBAT: The Participation Banks 1.707.89 4.419.56 Association of Turkey, 2012-14). 2009 710.666 807.312 1.193.692 4 4 Looking at deposit banks for the 2007-2013 period, their 1.403.69 3.728.92 profit increased by %67 from 2007 to 2013, and reached to 2008 638.102 685.679 1.001.456 2 9 22,5 billion TL in 2013. Increase rate of participant banks total net profit is %99 from the end of 2007 to the end of 2.363.81 2007 533.780 853.856 388.583 587.592 2013. The rate of participation bank’s is 1,5 times higher 1 than deposit banks. In terms of average profit per bank, deposit banks have too high figures compared to participation banks naturally. However it is also obvious that average scales, branch numbers and history of deposit Table-14/b: Increase Rate from Previous Year at Equity banks are above participation banks. Capital, 2007-2013 (1.000TL)

Türkiye Finans has the biggest share in total profitability of Increase Rate total participating banks at the end of 2013. Kuveyt Türk, END ALBARAKA BANK KUVEYT TÜRKİYE From Al Baraka and Bank Asya follow it respectively. OF TÜRK ASYA TÜRK FİNANS Prev.Year Furthermore, Kuveyt Türk has the highest average net YEAR Total profit increase rate among the others. Kuveyt Türk has Sum more stable rates at the last seven years. Average Table-13: Net Profit/Loss of Deposit Banks for the 2007- Year, 2007-2013(1.000.000) 2013 33% 23% 39% 30% 29% Year 2007 2008 2009 2010 2011 2012 2013 2013 23% 7% 37% 19% 20% Total 13.468 11.852 18.490 20.518 19.849 21.539 22.473 2012 21% 10% 17% 32% 19% Inc.Rate -12 56 11 -3 9 9 2011 18% 10% 14% 15% 13% Source: Composed from data provided by (BAT: The Bank 2010 20% 14% 56% 18% 23% Association of Turkey, 2011-2014) (BAT: The Bank Association of Turkey, 2012) (PBAT: The Participation Banks Association of Turkey, 2012-2014).

2009 11% 22% 18% 19% 19% 14.513.41 43.338.69 2010 8.406.301 9.727.117 10.691.860 9 7 2008 20% 64% 76% 70% 58% 11.608.95 33.628.03 2009 6.414.914 6.904.526 8.699.643 2007 117% 35% 55% 35% 52% 5 8

25.769.42 Source: Composed from data provided by (BAT: The Bank 2008 4.789.108 8.108.129 5.768.034 7.104.156 Association of Turkey, 2011) (BAT: The Bank Association 7 of Turkey, 2012-14) (PBAT: The Participation Banks 19.435.08 Association of Turkey, 2012-14). 2007 3.690.029 6.260.048 3.868.318 5.616.687 2

Türkiye Finans has the biggest share in total equity capital

of total participating banks at the end of 2013, although, Bank Asya has the biggest share in total equity for six years Table-16/b: Increase Rate from Previous Year at Total before 2013. Bank Asya, Kuveyt Türk and Al Baraka Assets in Participation Banks,2007-13(1000TL) follow it respectively for 2013. Furthermore, Kuveyt Türk has the highest average equity capital increase rate among Increase the others. Kuveyt Türk has biggest equity growing rate at END OF ALBARAKA BANK KUVEYT TÜRKİYE Rate From the last seven years. YEAR TÜRK ASYA TÜRK FİNANS Prev.Year Total Sum Table-15:Equity Growth of Deposit Banks,2007- Average 2013(1.000.000 TL) 2007- 2013 29% 31% 37% 30% 32% Year 2007 2008 2009 2010 2011 2012 2013 2013 40% 30% 37% 43% 37% 64.53 72.06 93.83 114.97 123.00 157.55 165.95 2012 18% 24% 27% 30% 25% Total 3 1 3 9 7 3 4

2011 3% 18% 53% 27% 29% Inc.Rat e 12 30 23 7 28 5 2010 31% 25% 41% 23% 29%

Source: Composed from data provided by (BAT: The Bank 2009 34% 43% 20% 22% 30% Association of Turkey, 2011) (BAT: The Bank Association of Turkey, 2012-2014) (PBAT: The Participation Banks 2008 30% 30% 49% 26% 33% Association of Turkey, 2012-2014) (BAT: The Bank Association of Turkey, 2013) 2007 48% 50% 32% 36% 42%

Source: Composed from data provided by (BAT: The Bank Growth of Total Assets Association of Turkey, 2011-2014) (BAT: The Bank Table-16/a: Growth of Total Assets in Participation Association of Turkey, 2012-2014) (PBAT: The Banks, 2007- 2013 (1000TL) Participation Banks Association of Turkey, 2012).

END ALBARAK BANK KUVEYT TÜRKİY TOTAL When we look at the table of growth of assets, it is seen OF A TÜRK ASYA TÜRK E FİNANS SUM that participation banks provide in the 2007-2013 period YEAR according to deposit banks. Participation banks increased Average their total assets 394% owing to deposit banks increased 2007- 15.265.08 12.281.37 49.216.36 their total assets 189%. 2013 9.043.635 9 7 12.626.262 3 Bank Asya has the biggest asset among participation banks, which is followed by Kuveyt Türk at the end of 2013. 27.784.94 25.893.54 96.021.67 Similarly in this case, Kuveyt Türk has the highest average 2013 17.216.553 7 2 25.126.629 1 increase rate for 2007-2013 period. Bank Asya, Türkiye Finans and Al Baraka follow it respectively 21.390.02 18.910.51 70.244.69 2012 12.327.654 4 3 17.616.504 5

17.190.09 14.897.59 56.076.92 2011 10.460.885 13.528.353 9 2 9

The Participation Banking As A Different Banking Method And The Developing of it’s in The Turkish Finance Market-Turkish Participation Banking For 2007-2013

Table-17: Growth of Total Assets in Deposit Banks, Chart-2:Share of Participation Banks in the Sector 2007- 2013 Year 2007 2008 2009 2010 2011 2012 2013 Share in the Sector 542.2 682.9 771.5 930.9 1.119.9 1.245.4 1.565.2 Total 93 37 12 47 11 16 58 6,00% 4,00% Inc.Ra 2,00% Share in the te 26 13 21 20 11 26 0,00% Sector Source: Composed from data provided by (BAT, The Bank Association of Turkey, 2011-2014) (BAT, The Bank Association of Turkey, 2012-2014) (PBAT, The Participation Banks Association of Turkey, 2012-2014).

The table clearly shows that The Participation banks have increased the theirs shares in the sector. While the share of

Participation banks is %3,3 in 2007, the share reaches to Table-18: The Shares of Participation Banks within the %5,6 in the end of 2013. The increasing rate of sector share Sector is %68 as a number.

(1.00 Deposit Banks Dev. and Inv. Participation 0.000 Banks Banks ) VI. Conclusions The old name “Special Finance Houses” the new name Year Secto Total Ratio in Total Ratio in Total Ratio in “Participation banks” are companies collecting funds r Assets the Assets the Assets the Sector Sector Sector similar to deposit through private current accounts and accounts giving right to profit/loss participation, and 2013 1.731 1.565. 90,40% 70.11 4,05% 96.02 5,55% utilizing funds through methods such as production .392 258 2 2 support, leasing, document against payment, partnership of profit and loss,. In Turkey, the foundation of these 2012 1.368 1.245. 91,01% 52.72 3,85% 70.24 5,13% companies has been permitted since 1984. Their number .387 416 6 5 which has increased to 6 decreased to 4 finally similar to the consolidation of deposit banks. However growth of 2011 1.217 1.119. 92,00% 41.63 3,40% 56.14 4,60% .695 911 6 8 volume and branch number in the finance sector particularly in the last years is also extremely valid for 2010 1.006 932.3 92,60% 30.95 3,10% 43.33 4,30% these companies. Their share is relatively small today in .667 71 8 9 total sector but it grows in a steady way with their higher development rate than other banks. In 2001, participation 2009 834.0 773.3 92,70% 27.02 3,20% 33.62 4,00% banks had total asset amount of 2,4 billion TL which meant 14 57 9 8 a share of 1,08 % in the total assets of the sector. These amounts and shares were 7,3 billion TL and 2,33 % in 2008 732.5 683.8 93,40% 22.94 3,10% 25.77 3,50% 36 23 3 0 2004, 13.730 billion TL and 2,75 % in 2006, 25.769 billion TL and % 3,50 in 2008, and 96.022 billion TL and 5,6 % as 2007 581.6 543.2 93,40% 18.88 3,20% 19.44 3,30% of the end of 2013. 06 72 8 5  These companies which are subject to most Source: Composed from data provided by (BAT, The Bank limitations of general arrangements and loan Association of Turkey, 2011-2014) (BAT, The Bank limitations in the Banking Act no. 5411 differ from Association of Turkey, 2012-14) (PBAT, The Participation deposit banks at most in terms of that they don’t Banks Association of Turkey, 2012-14). undertake the risk of interest. Because these kinds of banks don’t undertake the risk of interest which is one of the greatest risks which have to be managed in banking sector, we can talk about an asset- liability balance which is less sensitive to financial

crisis. However not to undertake the risk of interest, in insurance system in their financial credit operations these kinds of banks, differently from deposit banks, because of joint losses or gains. In both theory and eliminates the opportunity to obtain sudden and practice there is a legal gap that is why it leaded to high institutional profit based on interest rate some corruptions and abuses, the participation banks difference. and companies in Turkey and European countries, too.  While 32 private deposit banks have 343 This problem has been partially solved for Turkey. branches on an average, each of 4 participation Those banks and companies forced to adopt the status banks has 242 branches on an average in the end of and the legal structural establishment of banks and 2013. However in terms of the increase rate of companies. Some of them applied to be part of the branches from 2007 to 2013, it is seen that Capital Stock Exchange Market. That is why they participation banks reached approximately three times could be checked and controlled by the state audit bigger raise rate of branch numbers than deposit system. banks.  This study examines the case of each  Increase rate of loan-fund use operation from participation bank among each other for 2007-2013. the end of 2007 to the end of 2013 of participation The tables and figures show the each participation banks higher than deposit bank’s rate. They are 341% bank ordering at 9 different criteria. In conclusion, and 258 % in that order. Bank Asya is the leader among the four banks in the  Total net profits increasing rate of participant is seven criteria; Türkiye Finans is the leader in two %99 from the end of 2007 to the end of 2013 and criteria (Net Profit and Total Assets). reached to 1,05 billion TL in 2013. Looking at deposit  This study examines the more important thing for banks for the 2007-2013 period, their profit increased these banks. The average increasing rate for last seven by %67 from 2007 to 2013, and reached to 22,5 years has been calculated in this study. This figures billion TL in 2013. The rate of participation bank’s is show that Kuveyt Türk Participation Bank has the a little higher than deposit bank’s. In terms of average highest average in the all of criteria. profit per bank, deposit banks have too high figures  This study shows that The Participation banks compared to participation banks naturally. However it have increased the theirs shares in the sector also. is also clear that average branch numbers, scales and While the share of Participation banks is %3,3 in history of deposit banks are above participation banks 2007, the share reaches to %5,6 in the end of 2013.  It is seen that participation banks greater than The increasing rate of sector share is %68 as a before their equity in 2013 274% according to the number. 2007. Looking at deposit banks for the 2007-2013 period, their equity capital increased by 157 % from 2007 to 2013. The differences between them are REFERENCES significant.  Thus those given results also all support our Addave,S. (2012), “What are the impacts of the thesis in this paper.  Meanwhile, the participation banks also have global financial crisis on Islamic some problems for instance they have needed such as the Interbank system which provides urgent proper banking system and how Islamic bank credits for the depository banks in the short run. Whereas, this situation negatively hinders the spared from the crisis?”, participation banks performance. Because they are sharing nearly all of their funds for the creditors or http://epub.lib.aalto.fi/en/ethesis/pdf/12 investors who uses them for leasing, sales, trade, production, , export and imports which composed the 737/hse_ethesis_12737.pdf real sector in the economy.  For that reason it is very important interest for the participation banks forming the similar interbank Ahmad, A., Humayoun, A. A., & Hassan, U. u. organization which would increases their customers and operational transactions, too. For instance, the (2010). An Analysis of Functions establishment of guaranty insurance system among the participation banks optimistically influenced their Performed by Islamic Bank: A Case of growth in the market.  Nevertheless, the depository banks they are the Pakistan. European Journal of Social corporations so their rulers and executive bodies are responsible fully form their operations and in any Sciences , 17 (1), 7-12. case, the state quarantined their possible bankruptcy situations, but in the Participation Banking systems there was no such kind of full responsibility or

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(*This study contains only 2007-2009

year in the sector.)

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